For my first seven years out of college, I got paid on the first day of each month. It made budgeting ridiculously easy. I could pay all of my bills right away, and then I knew how much I had available to spend the rest of the month.
Then Brandon and I got married and combined our finances, and suddenly budgeting was a little more complicated. Brandon got paid twice a month, meaning we had to time his paychecks to our bills.
Not too long after that, I quit my job to run my business full-time. And unlike my government job, self-employment doesn’t come with the same consistency, such as a paycheck once a month.
I knew I had to figure out a different budgeting system before leaving my full-time job.
Then I learned the concept of getting one month ahead in your budget (aka spending last month’s income). This system has completely changed the way I budget and has eliminated so much of the stress I used to have around my finances!
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What does it mean to get one month ahead in your budget?
Most people budget each month with the income they’ll get that month. For example, someone would pay all of their November bills with the income they’ll earn in November.
Getting one month ahead in your budget means you’re always living off of last month’s income. So instead of paying November’s bills with November’s income, you’d pay November’s bills with October’s income. Then you’d use your November income to pay your December bills, and so on.
The benefits of getting one month ahead in your budget
YOU DON’T HAVE TO TIME YOUR BILLS WITH YOUR PAYCHECK
For people who get paid biweekly or twice per month, budgeting can be a huge hassle. You have to make sure that for each of your bills, you’ll have the money in your paycheck to cover it.
Let’s say you get paid on the 1st and the 15th of each month. But what if most of your bills are due in the first half of the month? You’ve barely got enough to cover your bills, and then you’re pinching pennies and waiting to buy groceries until your next paycheck comes in.
When you budget a month ahead, all of the money is in your bank account on the first of the month, so you don’t have to worry about when exactly each of your bills is due.
IT SERVES AS A SMALL EMERGENCY FUND
You probably already know that saving up an emergency fund is critical to getting ahead with your finances. The general rule of thumb is to save 3-6 months of expenses, but the minimum you should have is one month’s worth.
When you’re budgeting one month ahead, you’ve already got that small emergency fund built into your budget. If any emergencies happen, you know you’re covered for at least the next month.
IT ENSURES YOU’RE ONLY SPENDING MONEY YOU ALREADY HAVE
Many people get into a pattern where they put all of their expenses onto a credit card and then use their income from the following month to pay off their credit card.
The problem with this is that you’re spending money you haven’t even earned yet. First, it’s just not a good habit to get into. Second, if you lose your job and don’t have the income you expected, you may not be able to pay for those purchases at all. Rather than always being one month ahead on bills, you’re always one month behind.
When you budget one month ahead, you know you’re only spending money you already have.
IT REDUCES FINANCIAL STRESS
I can say from personal experience that my financial stress decreased in a big way when I started using this budgeting system. I didn’t have to monitor my budget quite as closely.
It’s also been a life-saver as Brandon and I have been traveling full-time. First, we have to pay for many of our RV park reservations ahead of time. If we weren’t ahead on our budget, we wouldn’t be able to do that.
It’s also helped us to navigate through the small emergencies that have popped up since we’ve been on the road, such as having to replace all of our RV tires or buy a new car while on the road.
Edit: Now that we’re done traveling and we own a home, budgeting one month ahead is just as beneficial! This budgeting style definitely isn’t just for those in unique circumstances.
How do you get a month ahead?
STEP 1: CREATE YOUR MONTHLY BUDGET
The first step to getting one month ahead is to create a monthly budget. For this system to work, you need to know exactly how much you’re spending each month and where your money is going!
Here’s how to create your budget:
- Determine your monthly income
- Make a list of your monthly fixed expenses
- Track your spending for the past 3-6 months to determine your variable expenses
- Decide on spending goals (use how much you’ve been spending to figure out how much you WANT to be spending)
- Don’t forget to make room for debt payoff and savings goals!
- Make sure your spending is less than your income
STEP 2: ROLL EXTRA MONEY OVER TO THE NEXT MONTH
Ideally, you won’t be spending exactly as much as you earn each month — there should be some left over. Then, you can start using that extra each month to build your one-month buffer.
The idea is that every month, your buffer will get a little bit bigger until you’ve saved enough for the entire month of expenses.
Let’s say you have $3,000 per month of income. You currently spend or save $2,750 each month, which leaves you with $250 left over. You can put that $250 toward the following month’s budget. A month later, you can roll over another $250 for a total buffer of $500. Each month, the buffer will grow a bit until it reaches enough to cover your entire budget.
What if you’re living paycheck to paycheck?
This budgeting system is even more beneficial for people living paycheck to paycheck, for whom any financial emergency would throw them off.
Unfortunately, living paycheck to paycheck makes it especially hard to get one month ahead on bills. Here are a few ways you can start saving money, even if you’re on a tight budget:
- Use cashback apps like Fetch, Ibotta, and Rakuten. These tools allow you to earn a little extra money on purchases you’re already making.
- Negotiate your monthly bills. You can try negotiating bills such as your car insurance and internet to reduce your monthly payments.
- Pick up a side hustle. When you’re living paycheck to paycheck, every little bit helps!
- Sell stuff on Facebook Marketplace. You’d be surprised how much you can make by selling clothes or household items you aren’t using.
STEP 3: USE ANY CASH WINDFALLS TO BUILD YOUR BUFFER
In addition to using the extra money in your budget to build your one-month buffer, you can use any cash windfalls you have. Common examples include:
- Tax returns
- Extra paychecks (if you get paid every other week, then two months of the year you’ll get three paychecks instead of three)
- Side hustle income
STEP 4: BUDGET USING LAST MONTH’S INCOME
Once you save the full month of expenses, you’ll start using this to budget for each month’s expenses. Rather than creating your budget using the amount you’ll earn in the current month, you’ll use the amount you earned last month.
This budgeting system is really great for self-employed people. With irregular income, it can be hard to know how much to budget. But with this system, you’re budgeting with last month’s income.
It’s also worth noting that you aren’t limited to just getting one month ahead. There have been times when my income was less certain, so I budgeted two months ahead for added security.
BONUS TIP: USE A BUDGETING APP TO HELP YOU GET ONE MONTH AHEAD WITH YOUR BUDGET
Tracking your finances when you budget one month ahead can be tricky because you can’t just spend what you have in your bank account. Because of that, I recommend using a budgeting tool to help you stay on track. The budgeting app You Need a Budget is specifically designed to help you budget this way.
In fact, YNAB is how I first learned about this concept of budgeting one month ahead. I could talk more about the many ways this budgeting app has improved my finances, but I’ll save that for another article.
Getting one month ahead while paying off debt
One of the most common questions I get from people is about whether they should prioritize saving or paying off debt. The answer is both…sort of.
If you don’t have any sort of emergency fund in place, then saving one month’s worth of expenses should be your first priority. Once you’ve got that in place, you can start putting extra money toward debt using either the debt snowball or debt avalanche.
Of course, everyone has a different comfort level and financial situation. If you have a job where you’re at higher risk of losing your income or you have a family who depends on your income, it may be worth pulling back on debt payoff to build your emergency fund even larger.
And don’t forget that while you’re paying off debt, you can still save for other financial goals!
I’m not exaggerating when I say that getting one month ahead with my budget has totally changed my finances. Not only does it create a lot of peace of mind, but the financial habits I learned getting there changed everything. I credit those habits with us being able to travel the country for a year, buy a home, save for a baby, and pay off large amounts of debt.